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Retail Sales to Surprise to the Upside, Don’t Buy Into It

The calendar for the week has a key piece of data that you’ll want to watch out for. We have August Retail Sales data to be released on Wednesday morning. The consensus among a survey of economists conducted by Bloomberg suggests that this figure will decline by 2.1% after having surged 2.7% in the month prior. This may be overly pessimistic as a reading of -2.1% on the sales side would imply that spending among the US public was at its worst since last December, when it tanked 3.2%. Keep in mind that since the start of the year, Retail Sales have only shrunk in two of the months. Such a swing to the downside would be a sharp change in the public’s mindset.

Note that when excluding automobiles from the metric, the consensus forecast is set for an increase of 0.2%. This leads one to believe that automobile sales plummeted throughout the month, causing the broader metric to sink as well. This might not necessarily true. The popular “Cash for Clunkers” program was extended during this period and saw car purchases soar. In fact, there was a 25% jump in the number of autos sold. So there is little reason to believe that August saw such a pathetic performance in Retail Sales.

What to take away from this: Retail traders may splurge on stocks when they see that this number is surprisingly high. But one must ask themselves if this high figure is surely sustainable. Keep in mind that this data is for August and not for September – that’s five weeks back. Cash for Clunkers is over with and there is now little incentive to keep car purchases up. Just moments ago, Philips released it’s Q3 earnings report. In it, they said that the structural recovery in their primary end-markets has been absent. This speaks contrary to that which has been heard from the popular media and other pundits.

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May 2020


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